It depends on a number of factors that are going on. Have you correctly diagnosed that the problem is with the proxy server itself?

Some pop and stmp servers don't give ascii responses such that you get only a return code. Except for your own messaging and the server's return code response your telnet session would appear to be one way which is not the case.

Proxy servers can block telnetting into pop and smtp servers by looking for the identity header that an email client normally sends. If they don't see it then they make an arbitrary decision to block your transmission. Think of it as an anti-spam, anti-harrasment mechanism since isp's are normally shot out of the water when they have naughty clients who play dirty email tricks. The easiest way to verify this would be to configure your email client to use a pseudo proxy (using a tcp redirector while you sniff with etheral) on your own machine which redirects the communication through the isp's proxy server. That way you can read the messages that are being exchanged between email client and proxy.

Dru Lavigne tells me that her next article will be about proxies and she promised to discuss this very issue that you've brought up.